Although financial institutions with offices in the destroyed World Trade Center issued statements Wednesday that operations are continuing and data has been thoroughly backed up, the global financial market is likely to remain topsy-turvy as shaken investors trade stocks at a rapid clip and consumer confidence further slips with possible long-range ramifications, a leading market analyst said Wednesday.
“I don’t think there’s any question it’s going to lower consumer confidence at a time when it was very fragile and at a time when the economy was very fragile and hanging on a thread,” said Chuck Hill, research director at Thomson Financial/First Call in Boston, assessing the economic fallout of Tuesday’s unprecedented terrorist attacks.
“I doubt they were taking into account where we were on consumer spending,” he said of the terrorists and their timing, “but they couldn’t have picked a worse time for the economy. We’re less able to absorb it at this time than we would be at other times.”
The global economy was already “on that knife edge” where boosted consumer confidence in the near term could have meant slipping off the edge on to the side of a turnaround, he said. But if confidence shatters further, the other side of the knife could be a worldwide recession. “Is this the straw that breaks the camel’s back? I don’t know. It may be … There’s certainly going to be a negative there. Just how much, I don’t know,” Hill said.
Dozens of major financial institutions, including banks and investment houses, had offices in the “Twin Towers” that collapsed Tuesday after both were hit within minutes of each other by airliners hijacked after leaving Boston’s Logan International Airport. Among them are Bank of America, Bank of Taiwan, Lehman Brothers Holdings Inc., Morgan Stanley Dean Witter & Co., Thomson Financial and Cantor Fitzgerald LP.
With U.S. trading suspended for a second day, financial institutions did their best to calm public concerns, releasing statements that operations are running and customer support is available, but most also made it clear that the top concern for them is to determine whether their employees in the attacked buildings have survived and to draw together for emotional support. Numerous companies that could be contacted either referred questions to Web site statements or said that no one was available to comment. Some employees outside of New York offices reached by telephone wept as they spoke Wednesday.
Numerous companies had not been able to determine if employees were evacuated. Risk Waters Group, a financial information supplier based in London, does not yet know what happened to those who were attending a Financial Technology Congress on the 106th floor of one of the 110-story towers. The upper floors of both towers, however, were decimated by the immediate impact of the airliners.
Likewise, Cantor Fitzgerald International had not been able to determine the number of employees who were on floors 101 through 105 of the North Tower, hit by the first plane. Hill specifically mentioned Cantor Fitzgerald when he said “there are some worries, I think, on the bond side, where you had some of the principal treasury market makers that may have been hit pretty hard.”
Whether the company had backed up data is not known, Hill said, adding, “Given what floors they were on, I think we better be saying some prayers for their people.”
Incredibly, Morgan Stanley Dean Witter, the largest tenant with 3,500 workers at the World Trade Center complex, reportedly sent a memo to employees Tuesday night saying that everyone at the complex is believed to have survived. Likewise, Credit Suisse First Boston Corp., an investment bank, had about 800 people who worked in the complex and all of them were evacuated.
“It is difficult to say how this affects business. We still have infrastructure in New York, there are people in our main office on Madison Avenue,” said Paul Rimmer, a spokesman for the parent Credit Suisse Group. “I can’t assess what the impact will be on the world financial markets.”
One key factor, Hill said, will be what happens when the U.S. retaliates. President George W. Bush has indicated repeatedly that the government will take action. Such retaliatory measures could involve military action against OPEC nations or countries in that region, and depending on where bombs drop, the world oil supply could be affected.
Another likely scenario affecting U.S. finances specifically will be that the terrorism gives lawmakers carte blanche to tap into the Social Security surplus. Hot debates and political rhetoric could well be cast aside, which could mean that any effect on bond prices, closely linked to Social Security spending, will be “mitigated by the fact that this probably means the end of the lock box” on tapping those funds, Hill said.
“This gives everyone a convenient way out of that problem to ratchet up government spending,” he said.
Of course, others versed in global markets have different views about the likely outcomes. Tamar Frankel, a Boston University law professor with expertise in financial markets, does not think the terrorist attacks will lead to global recession. Nor does she expect much impact overall on financial institutions because every one of them “has a backup and a backup to a backup” of data.
Consumers are likely to exhibit confidence in the markets, and although she agreed that there is likely to be some drop in stock prices as markets reopen, she expects that there won’t be much long-range damage. Moreover, even the most chilling news events lead to moments of optimism and unity, Frankel said, downplaying what the acts of terrorism will do to the global economies.
“Every hurricane creates jobs – destroys and creates jobs. Every innovation destroys and creates. Our economy was in the doldrums in the 1940s. It’s not that I recommend a … World War, but looked what happened during the war,” she said. “I’m not sure that I would be foolish enough to even make suggestions (about what is likely to happen), but my sense is that there are many silver linings in the clouds.”
(Gillian Law in London, Joris Evers in Amsterdam, Stacy Cowley in New York and Scarlet Pruitt in Boston contributed to this report.)